Financing Land & House - 2 Different Loans

Just do the math. Since it should only be about a relatively small amount, the 2.2% per month is not that much more than the 1.2%. In return, you have full flexibility. Everyone has to weigh for themselves what is more valuable.

We had an interesting financing discussion at a local bank yesterday and learned the following:

- according to the financing advisor, a variable loan makes no sense at all, as the interest rate is significantly higher than the interest rate of an annuity loan with a fixed interest rate between 1 and 2 years.
--> variable interest rate: 2.2%
--> annuity interest rate: 1.25%

There are always strange offers. In this offer, the bank probably assumes it will be a short-term loan and therefore the costs have to be factored in. Normally, variable loans carry no interest rate risk, which makes refinancing cheap for the bank. For us, variable loans are consistently cheaper than fixed-interest ones. However, this is rather unusual in the consumer sector, I admit.

The interest rate for the annuity loan with a fixed interest rate of max 2 years is currently, in my opinion, a joke! I would immediately get other offers. But I must also confess that I only have experience with developed land.

The recommendation from Interhyp is very good. They can advise you comprehensively and often get very good terms. Even if you just "steal" the idea of splitting your financing from them.[/QUOTE]

The question is: How can that be? For what reason should I take a variable loan for this 3/4 year, as is so often recommended? I can simply fix the interest rate for about 1-2 years and then after about 3/4 of a year say that I want to repay the loan.

According to the bank advisor, that is no problem...

However, I am increasingly reading something about a prepayment penalty? How high is that roughly in such a case? Does it then make sense to take out a variable loan? If I fix the interest rate for 1 year but maybe start building after half a year, will high costs arise for me? Can I then simply refinance it? Otherwise, the variable loan would never make sense, right? I'm not quite sure whether the bank advisor is telling the whole truth here...

As mentioned: variable loan about 2.2% and annuity loans with 1-2 years fixed interest about 1.25%.

However, I am increasingly reading something about a prepayment penalty? How high is it approximately in such a case? Does it then make sense to take out a variable loan? If I fix the interest rate for 1 year but might start building after half a year, will I face high costs? Can I simply refinance then? Otherwise, a variable loan would never make sense, right? I'm not quite sure if the bank advisor is telling the whole truth here...

The answers can only be found in a crystal ball. 1. The prepayment penalty depends on the current market situation (for statutory calculation, the reinvestment interest rates of the Bundesbank are relevant (BuBA yields). If you want to repay without selling the property, the bank can a) refuse or b) set an arbitrary price for the repayment). 2. Just calculate an example for yourself: €75,000 as the necessary loan to buy the land. ==> Costs €412.50 per quarter as a variable loan (€1,650 p.a.) or €938 p.a. with fixed interest. The BuBA reinvestment yield is at -0.14%. Simply put, the bank (in statutory calculation) compares its lost earnings to the reinvestment interest. Currently, this has the extreme result that the prepayment penalty is often higher than the interest still payable for the remaining term. And yes, this situation is completely fine, as consumer protection advocates ensured exactly this calculation was implemented in the legislation. You fix the rate for 2 years and want to exit after one year because you are building. Then you pay €938 interest for the first year and perhaps an additional €1,000 (the bank can calculate the penalty as it wishes in this case—it does not have to adhere to the statutory regulation). So total costs of about €1,900. With variable financing, you come off cheaper.

More important than 500€ more or less is the entire effort and paperwork with the bank, notary, etc. If the project is delayed by even just 2 weeks because of this – and it will definitely be – the existing apartment rental costs would be higher than the money saved.

More important than 500€ more or less is the whole effort and paperwork with the bank, notary, etc. If the project is delayed by even just 2 weeks because of that – and it definitely will be – the existing apartment rental costs would be higher than the money saved.

The question is, is there a paperwork battle here?

Isn't this a very simple matter?

Financing 90k with 1.25% interest with a 1-year fixed interest period. I do the whole thing, go to another bank after about 3/4 of a year and repay the loan from the bank. That’s the opinion of a financial advisor from a regional bank... The question is actually how high the costs per month would be regarding prepayment penalties or similar. Or whether every bank also repays the loan without any additional costs.. I am just still very, very uncertain about that.